Buggins Inc. is financed equally by debt and equity, each with a market value of $1 million. The cost of debt is 5%, and the cost of equity is 10%. The company now makes a further $250,000 issue of debt and uses the proceeds to repurchase equity. This causes the cost of debt to rise to 5.5% and the cost of equity to rise to 10.83%. Assume the firm pays no taxes. 1. What is the overall cost of capital? 2. What is the percentage increase in earnings per share after the refinancing?
Buggins Inc. is financed equally by debt and equity, each with a market value of $1 million. The cost of
debt is 5%, and the
uses the proceeds to repurchase equity. This causes the cost of debt to rise to 5.5% and the cost of equity
to rise to 10.83%. Assume the firm pays no taxes.
1. What is the overall cost of capital?
2. What is the percentage increase in earnings per share after the refinancing?
I already asked the question, and there was a mistake: equity and debt are each 1.000.000 in the beginning.
I don´t understand the solution for the number 2: There was interested included and I don´t know how to derive interest from the given numbers
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